Later this year Google (GOOG, GOOGL), through its Chrome browser, will end the use of third-party cookies, technology that can track people across websites to target them with personalized advertising. The transition won’t come without pain.
While Google’s initiative is meant to shield the privacy of users, many of the sites they rely upon and cherish could hang in the balance as a result. The move represents a profound remaking of the advertising world and user experience on the internet.
“The open web is going to suffer,” said Anthony Katsur, chief executive of the IAB Tech Lab, an ad-tech industry group. “The long tail of the web, the mid-sized and smaller publishers, are going to be very impacted.”
Many people are hyper-aware that the internet they experience is based on what various providers think they want to see. For marketers and businesses, that ability to infer what a user might want generates value. As targeting gets more precise, advertising can become more relevant to the audience.
Without the third-party cookie, however, businesses have less of an idea of who their audience is. That can degrade their ability to make money from advertising, making it harder to publish content for free without forcing users to hand over their emails or phone numbers.
Chrome, which commands 60% of global internet traffic, is the last major browser to allow third-party cookies. For years Apple’s (AAPL) Safari and Mozilla’s Firefox have blocked third-party cookies by default. But their share of the market is dwarfed by Google’s. And while additional ad dollars flowed to Chrome after Safari and Mozilla enabled greater privacy protections, there will not be another browser for the ad market to fall back on once Chrome says farewell to the cookie.
As a result, websites that rely on advertising on the open internet may struggle to exist. And users may be confronted with even more ads that they are less interested in as sites try to make up for the loss in value by churning out more ad volume.
Karsten Weide, the chief analyst at W Media Research, said some publishers could suffer revenue losses of 20% to 40% as the deprecation of third-party cookies diminishes the effectiveness of ads. “In a general sense, all sorts of websites will shut down or will be diminished in what they can provide,” he said. “Ironically, although this is designed to protect users, at the end of the day this will be worse for users.”
The end of third-party cookies could also in some ways worsen consumer privacy, experts contend, by further normalizing granular data collection. As more businesses steer people to log in to replace the data gathering that the cookie enabled, user profiles will become more detailed and centralized, essentially trading one paradigm of monitoring for another.
Part of the change, which Google expects to happen in the second half of 2024, will bring new privacy-preserving technologies to give websites alternative ways of delivering relevant ads. Google told Yahoo Finance that the company is confident its new tools will enable developers to recover a substantial portion of the loss that might otherwise occur without third-party cookies. One of the new targeting methods groups people into a larger cohort based on their web browsing activity. The technology does not individually identify users, but instead places them into a crowd with others who likely have similar interests.
In response to criticism that the tools won’t work as well as third-party cookies, Google said that the privacy initiative was never intended to replace all the features that the market has built on top of third-party cookies. Google also touted that the privacy initiative is a collaboration with other ad industry players, regulators, and consumer advocates. “No other browser has even attempted to provide such an array of solutions for the industry, let alone offered public consultation with stakeholders before making changes,” the company said.
But the changes will come.
Many of the web’s largest players will be better equipped to cope with the overhaul. The tech giants like Meta (META), Apple, and Amazon (AMZN) have erected their own walled gardens, giving them deep insight into the wants and behaviors of their users. And some major media companies and publishers with sizable followings can lean on subscriptions and an ecosystem of apps. They’ve forged direct relationships with their users through emails and logins, allowing them to generate revenue directly from their audiences and keep tabs on richer streams of data without the use of cookies.
For a great many others, striking a different balance on user privacy could trigger an extinction event. That’s especially true for websites already strained by falling traffic, economic volatility, and the looming threat of an AI-led transformation. The perception that ad dollars are better spent with the trillion-dollar tech companies will likely intensify as the death of the cookie spawns a void and a scramble for what comes next.
“Advertisers tend to balk when there are uncertainties,” said Evelyn Mitchell-Wolf, a senior analyst at eMarketer. “Ad spending won’t go down, it’s a matter of where it goes.”
